Cordiant pays price as Publicis wins

Publicis Groupe is circling the assets of Cordiant Communications. Not only does it look certain to pick up Allied Domecq, which exited Cordiant last week, but it is also eyeing a handful of the holding company's operational assets.

The defection April 28 of the world's No. 2 distiller, a key Cordiant client, almost forced the holding company to suspend trading and prompted it to announce a "very preliminary approach, which may or may not lead to an offer being made for the company."

Now Allied Domecq is set to hand a number of additional core drinks brands to Publicis' ad agency, Publicis Worldwide.

A senior Publicis Groupe executive said a deal had been done, though contracts hadn't been signed. Officials at Allied Domecq and Publicis refused to comment.

Cordiant had budgeted for $29 million in 2003 revenue from Allied brands such as Tia Maria liqueur, Ballantine's whiskey and Malibu rum.

Executives at several agencies speculated that a savvy rival like Publicis Groupe may have been aware that a raid on Allied Domecq would almost cripple Cordiant, given its debt load, and therefore put the company into play.

But, speaking at a Chicago Advertising Federation event May 1, Publicis Groupe's Chairman-CEO Maurice Levy tried to dampen speculation that the "preliminary approach" was made by Publicis.

"We have not looked at the assets and the client base of Cordiant so we have no idea if we may have any fit that should lead us to think of [pursuing it]."

While both Havas and WPP Group have been linked to a bid, executives behind the scenes say neither is interested.

talks held

Mr. Levy confirmed that Publicis is talking with Cordiant about acquiring the 25% stake in media buying operation ZenithOptimedia Group still owned by Cordiant, though he said, "We're not sure we'd get it for less."

An executive close to both parties said that although Cordiant has a put option to sell its stake for not less than $120 million on Dec. 31, 2003, the contract may include contingencies based on material changes at Cordiant.

And both parties could agree to do the deal sooner.

Two Cordiant divisions, direct and interactive arm 141 Worldwide and PR firm Financial Dynamics-currently negotiating a management buyout-would be a good fit and might help bolster Publicis' ongoing talks to expand business with McDonald's Corp.

However, Grey Global Group, which shares one of Cordiant's last remaining and apparently still loyal international clients, British American Tobacco, also emerged as a possible buyer for part of Cordiant. In some markets, for instance, Bates has strong agencies that would complement Grey shops. A Grey Global spokeswoman declined to comment.

A U.K. spokesman for BAT said, "BAT has a well-balanced agency portfolio consisting of three global agencies that allow us to efficiently move assignments and brands, which we do all the time."

last-minute deal

On May 1, Cordiant brokered a last-minute deal with its lenders, giving the group until July 15 to complete the ongoing sales of Financial Dynamics, European ad agency Scholz & Friends, and Australian agency George Patterson Bates. Cordiant also reported a net loss of $374.7 million for 2002, compared to a loss of $445.3 million in 2001, based on year-end 2002 exchange rates.

Revenue in 2002 fell by 11.3% to $854.5 million. North American revenue dropped 21.9% to $229.1 million, reflecting the huge losses of Hyundai Motor America and Wendy's International. Internationally, Cordiant still handles Pfizer and Volkwagen's estimated $100 million European SEAT business. In Asia, Bates' four main clients are BAT, Nokia, HSBC, and Heineken.

In Australia, George Patterson Bates is negotiating a management buy-back from Cordiant through venture capitalists Pacific Equity Partners. However, after its $19 million Hyundai loss last month, it is waiting to hear the fate of its $37 million Optus telecommunications business after a review. Ian Smith, president of Bates Asia Pacific, insisted the deal "is not contingent on Optus."